Commentary for Monday, July 13, 2015 ( www.golddealer.com) – Gold closed down $2.20 on the Comex today at $1155.30 – this after Greece was “saved” once again by its creditors. I think this time however there are changes in the way Greece does business. Whether they live up to these promises remains to be seen but let’s hope for the best. This last minute settlement seemed to calm stocks both here and in Europe. Greek banks are still closed but expectations are that they will reopen this week.
You can tell however that the Greek debt problem had little to do with the price of gold this past week. Even the downside today was small and if you look at the gold closes since last Monday there is not much in the way of fireworks – deal with Greece or no deal and possible exit from the European Union.
The price of gold has moved $1172.90 (last Monday) through $1152.40 (last Tuesday) – that was the entire spread for the week ($20.50) and if you throw today’s action into the pot the narrow trading range reasserts itself. So gold has pretty much yawned its way through this process.
The Dollar Index today woke up – most of last week the dollar was either neutral or weaker but today the range was between 95.63 and 96.85 – trading for 96.78 as of this writing. So we are once again gaining strength – to me this will cap gold this week.
Oil these past 30 days has moved from $60.00 to around $52.00 a barrel – it looks pretty steady at the lower end of this range – lower oil virtually insures the expected pop in inflation will be delayed again – but oil has been all over the place so let’s see what happens.
Silver closed down $0.03 at $15.43. This is where the physical market remains hot. The psychology of the silver buyer is difficult to judge. The US Mint announced last week that they were sold out of American Silver Eagles 1 oz and would not take orders for 2 weeks. Today they said no orders until August and they would be on allocation. Premiums on the US Silver Eagle are on the rise once again as the general marketplace is thin when it comes to live product.
But we have been through allocations before – it always stirs up the internet silver bullion folks who believe the general marketplace is woefully short of silver bullion. Keep in mind the US Mint is required by law to strike American Silver Eagles – they may slow down at times or even stop production because of logistics but they are not going anywhere. When the presses begin rolling again premiums will move lower. In the meantime there are other solid silver bullion choices if you want to save the larger premium spread.
Platinum closed up $4.00 at $1036.00 and palladium was higher by $9.00 at $658.00. There continues to be rhodium bar action at these current low prices – this market is also interesting. The public either completely ignores the Baird Rhodium 1 oz bar or they buy everything we have in stock. The stuff is super cheap so if you are looking for a dark horse bet this might be a consideration. One thing is odd however – rhodium bars are taxable (state sales tax) if you take delivery in California – no sales tax if shipped out of state.
This from Myra Saefong (MarketWatch) – China wants to steal gold-market ‘reins’ from New York, London – China has been making it very clear that it wants more control over the global gold market, but it’ll have to go through New York and London first.
“Given that China is the epicenter of the physical gold market, it does make sense that the Chinese government would want its physical Shanghai gold market to supplant the Comex derivative market (and others) as the primary global price-setting mechanism,” said Anthem Blanchard, chief executive officer of online precious-metal retailer Anthem Vault.
China is, after all, the world’s largest producer and one of the biggest buyers of the metal, often running neck and neck with India as the globe’s top consumer.
Last month, the Bank of China became the first Chinese bank to join the group of lenders that set the London Bullion Market Association’s gold price benchmark, and two more Chinese banks are reportedly working to become members.
“This will allow Chinese banks to participate in the gold market on a global basis,” said Julian Phillips, founder of and contributor to GoldForecaster.com.
The LBMA Gold Price replaced the historic London Gold Fix in March.
New York and London have generally been the hubs for setting gold prices. But with “so little gold going through Comex in physical terms, this is a distortion of demand and supply as it only reflects the trading picture of speculators in New York,” said Phillips. He noted that only 5% of contracts are delivered on Comex after notice has been given of this intention.
‘Control over the gold price is exercised in New York and London, leaving China at the mercy of those two centers.’
Julian Phillips, GoldForecaster.com
“Control over the gold price is exercised in New York and London, leaving China at the mercy of those two centers,” he said.
So despite China’s huge presence in the physical market, it hasn’t had much control over the global gold price.
Having New York and London as the price-setting locations has “kept gold prices well below the level of demand and supply should reflect,” Phillips said. China does not want an uncontrolled gold price, but it also “does not want the U.S./U.K. to have control over this market if they are minor players.”
On Thursday, August gold futures GCQ5, -0.18% settled at $1,159.20 an ounce on Comex in New York, and in London, the afternoon LBMA Gold Price was $1,164.25.
The Chinese stock market behaves differently from most other big markets in the world in normal times. During a big selloff, things can get really weird. Photo: Getty Images.
Gold prices haven’t found much support in the wake of China’s recent stock-market drop, but Blanchard said that if Chinese stock investors become “increasingly disillusioned” about losses in the country’s stock market, gold prices could “benefit greatly.”
Meanwhile, China’s greater presence in the world gold market could also help the country’s currency.
China can “promote yuan USDCNY, -0.0676% trading in gold, with Chinese banks taking up stock and selling it to other buyers in yuan,” Phillips said. Add that to a yuan gold “fix” price in Shanghai, expected before the end of the year and you will have a market “that is not distorted by the banks, their proprietary trading, or control of the gold distribution system globally.”
Instead, “China will hold these reins,” he said.
In the end, it may be really about China operating independently of the U.S. financially, Phillips said.
Gold isn’t just a commodity, it is “money” and recognized by all global central banks as such, he said.
To have a global multi-currency system, the expectation is that gold will act in a pivotal role alongside the U.S. dollar DXY, +0.84% sterling GBPUSD, -0.1804% the yen USDJPY, +0.53% and Swiss franc USDCHF, +1.1508% —and, this year, the yuan, he said.
He believes the dollar will lose a lot of its influence in global trade – “so it is not just about gold for China, it is a new monetary system relatively independent of the U.S. and the dollar.”
This from Keith Weiner (Monetary Metals Founder, Gold Standard Institute USA/Kitco) – There’s Your Hyperinflation! – Hyperinflation is commonly defined as rapidly rising prices which get out of control. For example, the Wikipedia entry begins, “In economics, hyperinflation occurs when a country experiences very high and usually accelerating rates of inflation, rapidly eroding the real value of the local currency…” Let’s restate this in terms of purchasing power. In hyperinflation, the purchasing power of the currency collapses. Before the onset, suppose one collapsar buys ten loaves of bread. Soon, it buys only one loaf. Shortly thereafter, it buys only one slice. Next, it can only purchase a saltine cracker. Pretty soon the collapsar won’t buy any bread at all. Stick a fork in it, it’s done.
Many critics of the Federal Reserve, the European Central bank, and others have predicted that this end is coming soon. They have been frustrated as prices are clearly not skyrocketing. For example, the price of crude oil was cut almost in half (so far). There’s little to see if one looks at the purchasing power of the dollar, euro, Swiss franc, etc. Purchasing power, as conventionally understood, is doing just fine.
Fed apologists are happily cooing about this. Last month, Nobel Prize winning economist Paul Krugman said, “This is actually wonderful.” Last year, he was gloating, comparing people who predict runaway inflation to “true believers whose faith in a predicted apocalypse persists even after it fails to materialize.”
And yet, all is not well in the realm of the central banks. Krugman may be right about prices, but nothing is wonderful. The economic downturn, which began in 2008, has been so bad that central banks persist in their unprecedented monetary policies. So if purchasing power isn’t collapsing, where can one find evidence of the problem?
Yield Purchasing Power (YPP) shows how much you can buy, not with a dollar of cash, but with the earnings on a dollar of productive capital. No one wants to spend their life savings or inheritance. People are happy to spend their income, but not their savings.
To come back to the analogy of the family farm, people should think in terms of how much food it can grow, not how much food they can buy by selling the farm. The tractor is good for producing food, not to be exchanged for it. Why, then, do people think of the purchasing power of their life savings, in terms of its liquidation value?
If they want to live long and prosper, they should think of their yield purchasing power. Their hard-earned assets should provide income. And it is here, that hyperinflation has set in.
Previously, I compared two archetypal retirees. Clarence retired with $100,000 in 1979, and Larry retired with $1,000,000 in 2014. Clarence was able to earn 2/3 of the median income in interest on his savings. Larry was nowhere near that. He would need over $100 million to do the same. In 35 years, the YPP of a 3-month CD fell more than 1,000-fold.
The collapse in YPP suggests an analogy to hyperinflation. Look at how much capital you need to support a middle class lifestyle. Measured in dollars, the dollar price of this capital is skyrocketing.
This skyrocketing price of capital has the same effect as hyperinflation: it undermines savings and causes people to eat themselves out of house and home.
What does this mean for anyone with less than what they need to support themselves – $100M and rising? They must liquidate their capital, and live by consuming their savings. It’s terrifying to anyone in that position – which means anyone in the middle class.
This problem is not well understood, because it masquerades as rising asset prices. The first tractor to go to the block fetched $1,000. The second went for $2,000. The farmland may fetch a few million. Everyone loves rising asset prices, and so in their greed and euphoria they miss the point.”
The walk in cash trade was steady to busy and the phones were hit or miss. Still the activity level remains strong (9) and most of these deals are the public buying silver bullion.
The GoldDealer.com Unscientific Activity Scale is a “ 9” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 9) (last Wednesday – 8) (last Thursday – 8) (last Friday – 8). The scale (1 through 10) is a reliable way to understand our volume numbers. The Activity Scale is weighted and is not necessarily real time – meaning we could be busy and see a low number – or be slow and see a high number. This is true because of the way our computer runs what we call the “book”. Our “activity” is better understood from a wider point of view. If the numbers are generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.
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